Question 1

If the rivers, lakes and air in the United States could all be privately owned, then:
A)​there would be less pollution.
B)​costs of production for many firms would rise.
C)​externalities would be internalized.
D)​all of the above are correct.

Accepted Answer

When resources like rivers, lakes, and air are privately owned, the owners have an incentive to minimize pollution to protect their property, leading to less pollution. Costs of production might rise for firms that previously could pollute for free but now have to pay the owners of these resources to emit pollutants. Externalities are internalized because the costs of pollution are borne by the polluter, who now has to compensate the owner of the resource being polluted.

Question 2

What distinguishes public goods from private goods?
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The answer of What distinguishes public goods from private goods?
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Question 3

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

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Question 4

What is the Coase Theorem? What are transaction costs?

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Question 5

Differentiate between a public good and a common resource gooD.​

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Question 6

What is the difference between private and social costs?

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Question 7

Why do most economists favor emissions taxes and transferable pollution rights over compliance standards as pollution deterrents?

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Question 8

If a developer plans to build a skyscraper in a major city overshadowing an historic church, could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not?
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Question 9

Explain why broadcasting television over the air is considered a public good. Why is cable TV not a public good?
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Question 10

If a subsidy was imposed on an industry whose production imposed external benefits on others, then the goods' consumers of the good would be ____ and the result would be a(n) ____ in efficiency.
A)​better off; increase.
B)​better off; decrease.
C)​worse off; increase.
D)​worse off; decrease.

Accepted Answer

Subsidies on industries with external benefits help to lower the cost of production or increase the supply of the good, making it more accessible or affordable to consumers, thus they are better off. Additionally, by aligning private costs with social benefits, subsidies can correct for the underproduction of goods with positive externalities, leading to an increase in efficiency.

Question 11

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:
A)​the Negative Externality Theorem.
B)​the Sexton Theorem.
C)​the Coase Theorem.
D)​the Abatement Theorem.

Accepted Answer

The theory described is known as the Coase Theorem, which states that if property rights are well-defined and transaction costs are low, private bargaining can lead to efficient outcomes even in the presence of negative externalities. This means that those who are negatively affected by the externality can be compensated by those who are creating the externality, resulting in a socially optimal outcome that makes everyone better off.

Question 12

The noise from the low altitude combat training the Air Force conducts over the Yippy I-O Ranch causes the ranch's cattle to lose weight. Which of the following actions is not consistent with recognition that the Yippy I-O has a property right to its skies?
A)​The Air Force equips its planes with mufflers.
B)​The Air Force compensates the Yippy I-O for the value of the lost weight.
C)​The ranch compensates the Air Force for the cost of moving the exercises to another location.
D)​The Air Force pays for cow earplugs for the ranch herd.

Accepted Answer

Option C is not consistent with recognition of the Yippy I-O's property right to its skies. The ranch shouldn't have to compensate the Air Force for exercising its property rights. The other options are all consistent with recognition of the ranch's property rights. A is a good compromise, but the Air Force would probably refuse to spend the money. B is also a good compromise, but it could be difficult to determine the true value of the lost weight. D could be possible, but it would be very difficult and expensive to put earplugs on a herd of cattle.

Question 13

What are the external costs and external benefits associated with cell phone usage in automobiles?

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Question 14

Beginning from a situation where there were no clear property rights to clean air and water:
A)​subsidies could not improve efficiency in cases of external benefits.
B)​subsidies could not improve efficiency in cases of external costs.
C)​taxes could not improve efficiency in cases of external costs.
D)​neither external benefits nor external costs could improve efficiency in either the case of external benefits or the case of external costs.

Accepted Answer

Subsidies could only improve efficiency in cases of external benefits, not in cases of external costs. In the absence of clear property rights to clean air and water, economic agents do not bear the full cost of their actions, which could lead to overconsumption of polluting activities. The government could use taxes to internalize these external costs and improve efficiency, but subsidies would not be effective in this case.

Question 15

Thousands of Japanese fishermen have used gill nets to catch tuna with great efficiency. Many environmentalists have objected to this practice since many other marine animals (such as dolphins and sharks) are killed by the nets and discarded by the fishermen. Which of the following statements is most accurate?
A)​A private solution can be reached through negotiation between the fishermen and the environmentalists.
B)​A private solution is not practical due to the large number of individuals affected.
C)​The market price of tuna is higher than the socially optimum price of tuna.
D)​A private solution to this problem would not affect the price of tuna.

Accepted Answer

A private solution is not practical due to the large number of individuals affected, including various marine species and numerous fishermen, making negotiation and agreement difficult.

Question 16

A tradable emissions permit program is efficient because the cap protects the environment while:
A)​generating substantial revenues for the government.
B)​keeping compliance and administration costs relatively low.
C)​while requiring the same response by each polluter.
D)​none of above

Accepted Answer

Tradable emissions permit program creates an incentive for firms to reduce their emissions by allowing them to trade unused permits to other firms. This flexibility results in lower compliance and administration costs as firms can choose the least costly method for reducing emissions. Additionally, the cap ensures that overall emissions do not exceed a predetermined level, thereby protecting the environment. While generating revenue for the government is often a desired outcome, it is not the primary reason for the efficiency of this program. The response required by each polluter varies depending on their individual circumstances, making option C incorrect.

Question 17

Various new cars are sold with sensors that automatically turn on the headlights at night or in low light conditions. Would these sensors create a positive externality or a negative externality? How?

Accepted Answer

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Question 18

The ____ is the government agency with the task of developing and enforcing policies that are aimed at protecting the environment.
A)​FDA
B)​DOI
C)​FEMA
D)​EPA

Accepted Answer

The EPA, or Environmental Protection Agency, is responsible for creating and enforcing regulations and policies aimed at protecting the environment and human health. It was established by the US government in 1970. The other options, FDA (Food and Drug Administration), DOI (Department of the Interior), and FEMA (Federal Emergency Management Agency) have different mandates and responsibilities unrelated to environmental protection.

Question 19

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

Accepted Answer

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Quiz 8: Market Failure

If the rivers, lakes and air in the United States could all be privately owned, then:

What distinguishes public goods from private goods?

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

What is the Coase Theorem? What are transaction costs?

Differentiate between a public good and a common resource gooD.

What is the difference between private and social costs?

Why do most economists favor emissions taxes and transferable pollution rights over compliance standards as pollution deterrents?

If a developer plans to build a skyscraper in a major city overshadowing an historic church, could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not?

Explain why broadcasting television over the air is considered a public good. Why is cable TV not a public good?

If a subsidy was imposed on an industry whose production imposed external benefits on others, then the goods' consumers of the good would be and the result would be a(n) in efficiency.

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:

The noise from the low altitude combat training the Air Force conducts over the Yippy I-O Ranch causes the ranch's cattle to lose weight. Which of the following actions is not consistent with recognition that the Yippy I-O has a property right to its skies?

What are the external costs and external benefits associated with cell phone usage in automobiles?

Beginning from a situation where there were no clear property rights to clean air and water:

A tradable emissions permit program is efficient because the cap protects the environment while:

Various new cars are sold with sensors that automatically turn on the headlights at night or in low light conditions. Would these sensors create a positive externality or a negative externality? How?

The ____ is the government agency with the task of developing and enforcing policies that are aimed at protecting the environment.

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

Quiz 8: Market Failure

If the rivers, lakes and air in the United States could all be privately owned, then:

What distinguishes public goods from private goods? ​

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

What is the Coase Theorem? What are transaction costs?

Differentiate between a public good and a common resource gooD.​

What is the difference between private and social costs?

Why do most economists favor emissions taxes and transferable pollution rights over compliance standards as pollution deterrents?

If a developer plans to build a skyscraper in a major city overshadowing an historic church, could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not? ​

Explain why broadcasting television over the air is considered a public good. Why is cable TV not a public good? ​

If a subsidy was imposed on an industry whose production imposed external benefits on others, then the goods' consumers of the good would be ____ and the result would be a(n) ____ in efficiency.

The theory that private negotiations have the potential to make some people better off without making anyone worse off when negative externalities are present is known as:

The noise from the low altitude combat training the Air Force conducts over the Yippy I-O Ranch causes the ranch's cattle to lose weight. Which of the following actions is not consistent with recognition that the Yippy I-O has a property right to its skies?

What are the external costs and external benefits associated with cell phone usage in automobiles?

Beginning from a situation where there were no clear property rights to clean air and water:

A tradable emissions permit program is efficient because the cap protects the environment while:

Various new cars are sold with sensors that automatically turn on the headlights at night or in low light conditions. Would these sensors create a positive externality or a negative externality? How?

The ____ is the government agency with the task of developing and enforcing policies that are aimed at protecting the environment.

How could transferable pollution rights lead to pollution being reduced at the lowest possible opportunity cost?

What distinguishes public goods from private goods?

Differentiate between a public good and a common resource gooD.

If a developer plans to build a skyscraper in a major city overshadowing an historic church, could an efficient solution be reached if the church had the legal right to prevent the developer from building in that location? Why or why not?

Explain why broadcasting television over the air is considered a public good. Why is cable TV not a public good?

If a subsidy was imposed on an industry whose production imposed external benefits on others, then the goods' consumers of the good would be and the result would be a(n) in efficiency.